Assume that a proposer and a respondent are playing an ultimatum game where they split a pie of Rs. 100. What is the backward induction equilibrium of this game? In a laboratory experiment we see that offers from the proposer averaging Rs. 20 are routinely rejected by the respondent. Name one theory that has been used to offer an explanation for this observation. Using that theory what modifications of agent utility functions are needed for such outcomes as described above to be equilibrium?

Assume that a proposer and a respondent are playing an ultimatum game where they split a pie of Rs. 100. What is the backward induction equilibrium of this game? In a laboratory experiment we see that offers from the proposer averaging Rs. 20 are routinely rejected by the respondent. Name one theory that has been used to offer an explanation for this observation. Using that theory what modifications of agent utility functions are needed for such outcomes as described above to be equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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